Oil Price Fundamental Daily Forecast – Plentiful Supply, Sluggish Demand Continue to Cap Rallies

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower early Thursday as traders show disappointment in the Federal Reserve monetary policy decision from Wednesday afternoon. The early weakness has erased all of yesterday’s early gains that were fueled by another bigger-than-expected draw in U.S. government inventories.

At 07:48 GMT, September WTI crude oil futures are trading $57.84, down $0.74 or -1.28% and October Brent crude oil futures are at $64.34, down $0.71 or -1.09%.

U.S. Energy Information Administration Weekly Inventories Report

Crude oil futures rallied early Wednesday after the U.S. Energy Information Administration (EIA) reported that U.S. crude supplies declined by 8.5 million barrels for the week-ended July 26. Traders were looking for a 3.9 million barrel draw down. This followed Tuesday’s American Petroleum Institute (API) report that showed at 6-million barrel drop.

The EIA data also showed a 1.8 million barrel draw in gasoline inventories versus a 1.1 million barrel draw estimate. Distillates fell by 900,000 barrels last week. Traders had priced in a 400,000 barrel increase.

Fed Disappoints

Crude oil broke from its earlier highs later in the session on Wednesday and early Thursday after Federal Reserve Chairman Jerome Powell signaled yesterday’s widely expected 25-basis point rate cut may have been the only move it makes the rest of the year.

Daily Forecast

A combination of factors are contributing to crude oil’s weakness today and this downside bias could continue throughout the session on Thursday.

Although U.S. crude oil stockpiles fell for the seventh straight week, traders were somewhat disappointed by the news that U.S. output increased to 12.2 million barrels per day (bpd) from 11.3 million bpd a week earlier.

Also weighing on prices was the lack of progress in U.S.-China trade negotiations, which ended this week with very little accomplished although both side agreed to meet again in September.

The Fed news was a surprise because crude oil speculators were counting on the Fed to be more aggressive by indicating additional rate cuts in September and December. Now, they’ll have to watch the data for the next month and wait until September 18 for the Federal Open Market Committee to make another interest rate decision.

In the meantime, plentiful supply and sluggish demand are likely to keep a lid on prices, while the OPEC-led production cuts and U.S. sanctions against Iran and Venezuela provide some support.